M&A deals in the United States are often scrutinized by the Committee on Foreign Investment in the United States (CFIUS). (Photo : Getty Images)
More and more Chinese companies are buying foreign firms at a record rate, according to an article by Business Insider. Experts predict that this trend is likely to continue for the most part of 2016.
To start off the year, Qingdao-based Haier has already bought General Electric. Meanwhile, Zoomlion made a big for Terex Corporation, a known maker for heavy-lifting equipment.
The same trend goes for other sectors such as the entertainment industry, with property and investment firm Dalian Wanda acquiring a majority stake in Legendary Entertainment.
It's only the start of 2016, yet there have already been about 82 Chinese outbound mergers-and-acquisitions announced, according to Business Insider. The total value? A staggering $73 billion, according to Dealogic. It's significantly higher compared to 2015, when they were able to seal 55 deals worth $6.2 billion in the same time period.
Other businessmen are scratching their heads at such acquisitions, but experts think they've got it down. It's all because of China's appetite for growth as the economy continues to slow down.
"With the slowdown of the economy, Chinese corporates are increasingly looking to inorganic avenues to supplement their growth," said Vikas Seth, head of emerging markets at Credit Suisse, in an interview with Business Insider.
Aside from economic growth, Chinese companies buying foreign firms can also lead to market access.
"Some of the primary motivations for cross-border acquisitions are access to new markets, brands, technologies, R&D capabilities, and, in some cases, to products and supply chains that can be sold into a buyer's distribution networks within China," said Seth.
"We think this pace will be sustained since China is going through a remarkable transformation of its economy."
It also appears to be a win-win situation for some parties--China gets its market access and growth, while Wall Street will experience a boost because the Chinese outbound M&A deals.
It's not without challenges, however, as M&A deals in the United States are often scrutinized by the Committee on Foreign Investment in the United States (CFIUS). Just recently, the organization put a stopper to the $3.3 billion sale of Philip's lighting arm to a group of Asian buyers.
Despite challenges, it looks like Chinese companies are in no hurry to end this government-backed foreign-buying spree.
